This is a CATO Institute Foreign Policy Briefing by Professors Steve H. Hanke and Kurt Schuler of Johns Hopkins University published in 1999. While the Argentine peso had been tied to the US dollar since 1991, speculators continued to anticipate it would be devalued, and thus interest rates in Argentina had at times reached 440 basis points higher than in the US, leading to consideration to fully dollarize what is already in practice a bimonetary system. This briefing outlines the background of the current system, including the differences between Argentina's Currency Law and a Currency Board, and the advantages of dollarization.  The briefing represents a follow-up to earlier works and discussion on this topic, including a monograph written by the same authors and translated and published in Spanish in 1991 with Prologue by legislator Jose Maria Ibarbia. That monograph, Banco central o caja de conversión?, was originally drafted in 1990 at the request of Argentine President Carlos Menem. Other commentary by the authors on Argentine currency arose from the Mexican Peso Crisis of 1994 (devaluation), also known as the "tequila effect" for its impact on the currencies of Chile and Brazil. Argentina's 1991 Convertibility Law, authored by Finance Minister Domingo Cavallo, had largely but not strictly followed the Currency Board model, had ended Argentina's hyperinflation that had peaked at nearly 5000%, and had prevented Argentina from being caught up in the 1994 contagion of currency devaluation.

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